Budgeting Mastery: Savvy Moves for Unforeseen Expenses

James Wilson
January 16, 2024
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KEY TAKEAWAYS
Unforeseen circumstances are those you won’t see coming.
Unforeseen costs can be tackled with emergency funds, review plans, or a good credit score.
By creating a budget, you can then free up some cash flow to save or go towards debt repayments.
An emergency fund is a pot of cash.
Prioritize spending on necessary costs over unnecessary wants.
Stick to your budget and build discipline in your spending habits.

Money management is a fundamental skill and can be extremely helpful in getting the most from your income.

Saving, and having money set aside in an emergency fund is something we should all work towards.

An emergency fund allows you to deal with unforeseen expenses without disrupting your monthly cash flow and reduces the risk of late payments on primary costs.

Whilst payday loan lenders can be helpful in times of need, read on as we take a look at some savvy moves for dealing with crisis costs.

The Nature of Unforeseen Circumstances

Unforeseen circumstances are exactly that – you won’t see them coming.

This is why they can have a drastic impact on your monthly income and cash flow if you’re not prepared for them.

This could be anything from an urgent car repair, a broken boiler in the middle of winter, or a vet’s bill that you’re just not sure how you’re going to pay for.

Do You Know?:
In 2021, according to the Federal Reserve, around 32% of Americans claimed they struggled to cover the cost of an unexpected expense greater than $400.

Examples of unforeseen expenses are medical costs, your pets, technical difficulties, home maintenance and repairs, gifts for any occasion, insurance premiums, etc.

This is why budgeting and focusing on creating a crisis fund is so paramount. Let’s take a closer look at how you can master budgeting to deal with an unprecedented expense.

Tips to Help You Plan for Unexpected Expenses

Unexpected costs, the term itself is enough to make someone anxious. But the good tidings are you can cope with them by following these noted tips:

Create an Emergency Fund: We recommend Individuals create a crisis fund to get some extra funds at times of trouble or certainly if needed. Treat this fund as a savings account.
Have you come across any emergencies? Utilize this fund as these are meant to be used in emergencies.

Review Plans: It’s ideal to plan things out or look at what the unexpected costs might be. It can be either your medical bills, home repairs, personal expenses, etc.
Assemble a plan earlier so that you are prepared to face unexpected costs shortly.

Improve Your Credit Score: Maintaining a good credit score can help one in tough times. It is because a good credit score can help you qualify for loans with lower interest rates in cases of emergency.

Let’s say you need to pay debts for your possessions but don’t have enough savings. In such cases, you can acquire loans hassle-free.

Creating a Budget

So, how do you create a budget? Firstly, look at your bank account or bank statement to find out your total income for the month. Then subtract your primary expenses – direct debits that are non-negotiable – like mortgage or rent payments, car finance, or travel costs.

Statistics:
The chart above demonstrates the average spending for an American household. In 2021, it was around $66,928. The mentioned pie chart is broken down into various budgeting categories like food (12.8%), housing (34.7%), healthcare (9%), transportation (17.2%), personal insurance and pensions (12.7%), apparel and services (2.5%), education (2.3%), and entertainment (5%).

With the money left over, categorize your other costs, like shopping, eating out, and entertainment, as well as savings and debt repayments.

If money is tight, try cutting down on categories in which you may be overspending, like eating out or entertainment. You can then free up some cash flow to save or go towards debt repayments. This way, you’ll know exactly what’s coming in and what’s going out, allowing you to manage your money more easily.

The Role of Emergency Funds

An emergency fund is a pot of cash you should have saved to help you if you’re faced with an unexpected expense, and it’s helpful to start saving for this as soon as you can.

Building up your crisis fund by transferring a small amount of your income into it each month, means you can deal with costs like broken boilers, car repairs, or medical bills more easily, without affecting your monthly cash flow.

It’s also helpful in preventing the need for short-term loans, resulting in further debt.

Prioritising Essential Expenses

It’s vital when sticking to your budget that you prioritize necessary costs.

Make sure you pay off your debt, as well as your non-negotiable costs like your rent or mortgage before spending money elsewhere. You should focus on paying expenses that could lead to debt or affect your life should you struggle to pay them.

If money is tight, this might mean reflecting on your budget and cutting back unnecessary expenditures to free up cash flow. Prioritizing is key when managing your income each month.

Staying Disciplined With Your Budget

Sticking to your budget is not always easy, but if you’re hoping to build up a crisis fund to benefit your cash flow when times get tough, you’re going to need to stick to your monthly plan.

Sometimes this is easier said than done, but with a few tips, you can master it.

Interesting Fact:
Shortly, 58% of Americans have less than $5,000 in savings.

Firstly, plan your monthly spending, including the cash you allow yourself for food shopping, entertainment, and personal care. Make a note of this somewhere so you can check you’re sticking to your budget. When you’re shopping, make sure you take a list with you, even if you’re only popping in for a few items.

This will stop you from impulse buying – seeing things you’d like and buying them when you don’t need them. You could also take the amount you’ve dedicated to your shopping in cash to deter you from overspending.